A CHALLENGING subject for farmers is the timing and structure of handing the farm over to the next generation, but the subject should not be ignored. A key part of this is understanding ‘fair’ does not usually mean ‘equitable’. Photo: SUPPLIED.

By Mark Rabich

February 18, 2023 | 12:00 PM

NOTHING lasts forever and although generational change might sometimes seem to be almost an illusion because it arrives so slow, the stark reality is farms and the families that run them and pass them on to their children must one day make the decision to begin and go through that transition.

Succession planning has advanced considerably in the past decades as part of cultural shifts including social expectations such as inheritance rights, but also changes in agricultural laws, education, technology and taxation.

Deep personal connections and sometimes multi-million dollar operations only add to the complexity of the subject and the one clear theme from researching multiple sources is there is no such thing as a one-size-fits-all solution for each farm’s situation to pass the baton to the younger generation – or even sell it off.

Perhaps an indicator of the interest in the subject can be gauged by the Hamilton-based National Centre for Farmer Health (NCFH) and their own output on the subject.

NCFH research assistant, Sally Cunningham, said they definitely understood it was one of the major issues farmers were faced with.

“We’ve done a series of 20 podcasts on our Campfire platform and the most popular topic was succession planning,” she said.

“I think the more we write about it the better, because sometimes it’s such a hard issue that it’s put on the back burner and never dealt with.

“When you’ve failed to deal with a difficult issue (the outcomes) are usually pretty poor.

“We probably all know families who’ve had that scenario.”

Working through family tensions

The engagement of an experienced third party to help all stakeholders through the process is increasingly becoming a necessity to avoid the pitfalls, listen to their concerns and encourage accountability once decisions have been reached.

Plan 2 Profit Agri chief executive, Mike Krause, was featured in the aforementioned Campfire podcast, and spoke about what he has learned from helping families on hundreds of farms work through the “psychological baggage that comes with having to discuss this around the family kitchen table”.

“(A facilitator) adds a third party to the discussion,” he said.

“That third party can manage the process as well as ask the elephant-in-the-room questions, which family members may not feel comfortable doing.

“The recipe I use - which I’ve found the most successful but doesn’t guarantee success in every family succession process I’m involved with - is effectively set the mood up so that every member (knows) they’re going to be listened to.

“I ring each family group individually before we have their first family meeting to get an idea of the family agenda.

“Then I pull the family together, we go through the same process again, so it’s a bit like me hearing it the second time - but then every person around the table can be heard.”

Mr Krause admitted this can end up being quite a confronting experience for some family members but “we’ve got to work through the emotions, because they’re important”.

“If we don’t work through them properly, then progress won’t be made,” he said.

‘Working properly’ through those issues was not always easy.

“I’ve had instances where the relationships are so toxic, that on the first meeting, we basically disbanded it,” Mr Krause said.

“(With) different family meetings, members (were) standing up (and) walking out on the meeting, saying, ‘I’m never coming back again’ - and so that was (a) disaster.

“But I try and get it so that people are listened to so if there are personalities in the room that dominate discussions, I’ll ask them to be quiet once they’ve had their say so that other people can also be heard.

“To me, that’s the best environment you can create to help manage that.

“Does it work every time? No, but (it) probably works about 80 per cent of the time.”

One of the major elephant-in-the-room questions was marriage separations and divorce.

“That question needs to be addressed,” Mr Krause said.

“In fact, the last family I was working with, the divorce actually happened three years ago and so we’re coming into family succession planning where that child had re-partnered, and that divorce - the pain that happened, and the financial stress that happened - nearly lost the farm for it - had to be talked through, had to be worked through and managed if it was going to happen again.”

Getting advice from multiple sources

Sinclair Wilson partner, Laurisa Walther, said over the 23 years she has worked with farming clients in the Hamilton and Warrnambool districts, the prevalence of giving advice on succession plans was increasingly becoming a natural consequence of their primary business.

“Since I’ve been here, there’s much more demand now for accountants to not only do the compliance work with BAS (business activity statements) and tax returns, but to give more advice (in their) work to clients,” she said.

“We’re certainly seeing a lot more work come through the doors with clients wanting to plan for their future, rather than what we might have seen 20 years ago: mum and dad die, and here’s the will and that’s our succession plan.

“Whereas now … we’re trying to time that much better to ensure the succession plan isn’t just something that just kicks into gear when the parents die.”

The potential awkwardness of discussing the finances was something that should not be put off for too long.

Ms Walther spoke on the importance of getting a wide range of advice as it was not uncommon for professionals in different fields to emphasise different parts of the problems and approaches to solutions.

“Over the past five years or so a lot of planning we do with the solicitor in the room with us – even farm advisors as well,” she said.

“I think it’s really important that you’re actually all working together because an accountant can see an issue from a tax perspective and a solicitor can see an issue from a legal perspective. That’s where you can find that two differing group views can really cause some trouble - so we do very much try and have everybody in the room and it’s a very open discussion.”

Following on from that, she echoed Mr Krause in terms of the importance of a collaborative family approach.

“Where we can, depending on what the family dynamics are like, we try to include all parties in that process,” Ms Walther said.

“So that’s obviously the parents, but also the on and off-farm children, because we’ve probably found in the past that where issues arise is where, you might have a son and three daughters, for example - the son knows he’s getting everything and the daughters are sort of left scrambling.”

Land values

The recent accelerated rise in property prices has become a major factor in causing friction and stress in succession planning.

“I think this issue is only going to get bigger as land values are predicted to continue to increase,” Mr Krause said.

“What happens is the kids that want to stay home and continue with the farming family might have an asset of $15 million, but the two kids or three kids that have gone off to university or work in the city … don’t have access to the farming family business anymore.

“(They say), I’ve got a million dollar mortgage – it’d be really great for me if I could get part of that and knock the mortgage off and move ahead - so why don’t I have the right to pull some of that asset out?”

The pointed discussions that might result from this may also be exacerbated by the simple reality with generational change on farms is that ‘fair’ rarely - if ever - means ‘equal’ and Mr Krause said discussions on this topic were one of the first things talked about “where we want to preserve the farming family business for the next generation”.

“We can’t be equal here, because if we break up that $15 million worth of assets equally six different ways, well, we probably don’t have a farming business left,” he said.

“But we can be fair, if three kids have stayed home for 20 years and worked on the business, and probably haven’t been paid professionally, there’s a lot of blood, sweat and tears, and there’s financial investment in the business there on their behalf.

“If other kids have been sent off to boarding school, sent off to universities, got a degree, established their careers outside the farm, well, in some regards, they’ve already received some inheritance because they’ve now got a good established career ahead of them.

“So we can sit back and have a discussion about being fair with this, rather than being equal with this.”

Ms Walther agreed and said even when “people stand back and take the emotion out of it, the dollars are quite inequitable”.

“Whilst the son probably would never sell the farm, the daughters can sort of look back and think, ‘well, there’s quite a few million dollars’ worth of value that they’ve just inherited’,” she said.

“They might be only getting a couple of hundred thousand (dollars). That might be some off-farm assets, shares or super funds or something like that.

“So there’s definitely the issues that come from inequity and sometimes there’s actually no way to overcome that.

“That’s probably where the horror stories can come from and it has left families not speaking ever again.”

Keeping notes and allocating time

Mr Krause had strong feelings about the way meetings were run.

“I think it’s really important to run the meeting (with) an informal tone, but have it rigorously managed with an agenda, and minutes written up where major decisions are recorded, what actions need to be taken by who and by when,” he said.

“So when we come back for the next meeting, we’ve hopefully knock(ed) off a lot of those so that we can move on.”

He said it wasn’t always clear how long the process might take - it could be 20 years after the first time it is mentioned - and sometimes it can go much faster; he used an example of a just-completed succession plan that initially appeared it would take much longer than it did.

“It’s hard for me to predict how many meetings we need,” he said.

“(In) the last farm succession planning meeting, we’re now up to meeting six and we have accomplished our goal where we needed the family farm split up before the first of July so that the two sons could then farm independently of themselves on for the rest of their farming careers.

“I didn’t think we were going to get anywhere near that in October last year. But just following this process through of listening to people, working out the best options, being understanding, taking their argument and different opinions, work through them, record them, move on - has helped us establish and achieve that.”

Successful succession and the after-effects

For Ms Walther, there was a good measure for what she considered a successful outcome.

“We’ve certainly seen them and the success stories are the ones where everybody is involved,” she said.

“The success stories come from everyone knowing exactly what’s going to happen.”

She said often a gradual handover helped too, with the parents remaining on-farm even to the point where the process was almost complete.

“So then (the on-farm children) get a sense of running the show that whilst the parents are still around to help them and then the parents sort of ease into their retirement phase,” Ms Walther said.

But family members experiencing mental and/or emotional stress could still be something to deal with.

Ms Cunningham said the NCFH hoped farmers to make use of the many available emotional support resources as well, since the changes in approach over decades and the impact of the transition was sometimes too much to carry alone.

“I think it’s worth acknowledging the way we think about succession planning and who gets what has certainly moved,” she said.

“A lot of farmers go through this and the stress associated with it can be significant.”

She pointed to the NCFH and Grains Research and Development Corporation (GRDC) websites as good places to find information and help.

Checklist and resources

Talk early about the subject

Parents should share their wants, needs and concerns

Consider a succession facilitator and other professionals

Sharing financials is important, even if it is difficult for some

Getting comfortable with changes takes time for every individual

‘Fair’ usually does not mean ‘equal’

Document the process in an ordered way

Research from family stakeholders can encourage involvement